The Hindu Business Line : Realty stocks benefit from unchanged interest rates

Mumbai, April 29 Realty stocks rode high as the credit policy left repo and reverse repo rates unchanged. The BSE-Realty index rose 5.90 per cent and was the highest index gainer on the bourse. Realty major DLF jumped 8.57 per cent to Rs 725.85, Unitech Ltd was up by 8.18 per cent at Rs 317.50 and HDIL gained 6.61 per cent to Rs 775 on Tuesday.

“The market was expecting interest rate changes; but, the RBI credit policy has maintained status quo on the repo and reverse repo rates. As this sector is an interest-sensitive sector, it will definitely benefit from the unchanged interest rates, which will not cause much change in the liquidity flow,” said Mr Shailesh Kanani, Realty analyst, Angel Broking Ltd.

Volatile sector

The strong rally in most realty stocks was a reaction to a favourable credit policy, but some marketmen felt that it was too premature a reaction. As the realty sector is a high beta sector (highly volatile sector, where the stock of that sector will fall more than the benchmark index and rise more than it also), the stocks go up more than even the Sensex in times of a bullish market,” said Mr Kanani.

The benchmark index, Sensex, was up by 2.13 per cent. In its credit policy, the RBI enhanced the limit of Rs 20 lakh to Rs 30 lakh in respect of bank loans for housing in terms of applicability of risk weights for capital adequacy purposes. Accordingly, such loans will carry a risk weight of 50 per cent.

“The ticket size of the given risk weight has increased, taking into account the current real estate prices scenario; this will boost growth in the sector,” said Mr Jaydeep Goswami, Head of Research, UTI Asset Management Ltd.

While the central bank has mentioned price stability as its key priority, the overall undertone of the policy is not as hawkish as the market feared, said analysts. “There seems to be a realisation that higher rates are hurting growth, particularly in the interest rate sensitive sectors,” said Mr Navneet Munot, Executive Director, Morgan Stanley Mutual Fund.

Control measures

Apart from the favourable interest rate regime, which may help boost the realty stocks, the Government’s inflation control measures, including those on steel and other such raw materials are also positive for the sector.

“The Government is trying to control the prices of steel and cement; thus the profitability of the construction companies will increase, while the cost of borrowing has not increased,” said Mr Anmol Sekhri, Fund Manager, Bonanza Portfolio Ltd.

In addition, the tax holiday for software companies under the Software Technology Parks of India (STPI) scheme was extended by another year on Tuesday. In the commercial segment around 70 per cent of the demand comes from IT/ITeS sector, mentions a research report from Religare.

“The extension of tax holiday in STPI would mean a little spike in the demand for commercial property, so the commercial, including the rental sector, will benefit in the short term,” said Mr Kanani.

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